Here's how to profit if rates go nowhere: Trader

All eyes are on the Federal Reserve this week as a two-day meeting gets underway Tuesday. As Wall Street awaits a rate hike timeline from Fed Chair Janet Yellen, one trader is bracing himself for a potential shake-up in the bond market.

"I think Yellen is going to say something that will make interest rates go higher," technical analyst Andrew Keene said Tuesday on CNBC's "Trading Nation."

On a chart of the iShares 20+ Year Treasury Bond ETF, better known as the TLT, Keene noted that the ETF has been in a "bearish trend channel" since hitting its year-to-date high of $138.50 on Jan. 30.

"I would be short here," he said. In the past month the yield on the U.S. 10-year has surged to just under 2.4 percent. This as the TLT, the ETF that tracks longer-dated bonds, is down nearly 3 percent in the same period.

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Janet Yellen
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Janet Yellen

So to protect himself from a possible selloff in the TLT, Keene used an options strategy that provides him the opportunity to profit if the ETF goes higher, lower or stays the same through the end of the week.

Specifically, Keene sold the June 118/119 call spread for a 45 cent credit. That 45 cents is the most Keene can make on the trade, but in order to keep all that money, he needs TLT to stay below the strike of the call that he sold, minus the credit he received, or in this case, below $118.45.

"What I like about this trade is it has a great risk-to-reward ratio," added Keene, founder of Keene on the Market. "I'm risking $55 to make a potential $45."

In the event that interest rates do spike, Keene suggested investors look to purchase stocks and ETFs that benefit from a high-rate environment such as banks or the XLF.

Correction: Due to a misstatement by the trader, an earlier version of this article had the improper strike prices. The correct strategy is to sell the June 118/119 call spread for a 45 cent credit.